Banks accused of harming CDS market as EU seeks Libor deal

The probe is one of several...

Global Regulators

Global regulators are seeking to toughen regulation of the credit-default swap market, saying the trades helped fuel the financial crisis. The EU’s swaps probes add to separate investigations into whether banks colluded to manipulate the London interbank offered rate and oil benchmarks.

“Perhaps one of the outcomes of this sort of inquiry will be to speed up the process of standardising contracts in the market in order to facilitate more activity on the exchanges,” Richard Reid, an economist at the University of Dundee in Scotland, said in an e-mailed statement. “This in turn would also help to allay some concerns about the stability risks emanating from the derivatives business.”

While fines for antitrust violations can reach 10 percent of global sales, only about a tenth of recent punishments have approached that ceiling, according to EU data updated in March. About half of penalties amount to less than 1 percent, according to the commission.

Too Soon

Almunia declined to speculate on the size of possible penalties against the companies and said regulators gave the parties “some general orientation on how to estimate and calculate the fines.”

“Today, it is still very soon to elaborate on this issue,” he said.

About 2 million CDS contracts have been traded so far this year, with a notional value of $10 trillion, the commission said, citing data from the Depository Trust & Clearing Corporation.

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